Upper Tribunal Tax and Chancery Chamber

UT (Tax & Chancery) UT/2023/000079 UT/2023/000109 - [2025] UKUT 00059 (TCC)

Fecha: 20-Nov-2024

Appellants’ appeal on section 103 debt incurred issue

Appellants’ appeal on section 103 debt incurred issue

13.

The Appellants submit that the FTT erred in law in its conclusions on the Section 103 Debt Incurred Issue, in particular in holding that:

(1)

it is a necessary consequence of the deeming in s49(1) that the interest in possession beneficiary is deemed to have incurred debts actually incurred by the trustees;

(2)

the liability under the Note was a “debt incurred by” Mrs Elborne within the meaning of s103(1); and

(3)

the consideration for the debt was “property derived from” Mrs Elborne within the meaning of s103(3).

14.

Whilst these grounds of appeal identified three alleged errors of law, by the time of the hearing the parties addressed (1) and (2) together and we have adopted that approach.

15.

In summary, s103 involves four components:

(1)

the premise of s103 is that it applies where you are determining the value of a person’s estate immediately before his death;

(2)

it applies where account would otherwise be taken of “a liability consisting of a debt incurred by him or an incumbrance created by a disposition made by him”, with HMRC relying on the Note being “a liability consisting of a debt incurred by him”;

(3)

the consideration for the debt (or incumbrance) is either within s103(1)(a) or s103(1)(b), with HMRC relying on the consideration being “property derived from the deceased” within s103(1)(a), which is then defined in s103(3); and

(4)

the consequence is that the liability is abated to an extent proportionate to the value of such consideration.

16.

There was no dispute in relation to the application of (1) and (4) above, as it was agreed that the consequence of s103 applying would be to reduce the value of the liability, the Note, to nil as the totality of the consideration was the Property. The issues between the parties related only to (2) and (3).

17.

We set out the relevant legislation, including the charging provisions within IHTA 1984, s49 and s103, summarise the parties’ submissions and then set out our discussion and conclusions on the issues.